This paper investigates whether Japanese banks had been following herd behavior in the domestic loan market from 1975 through 2002. Applying the technique developed by Lakonishok, Shleifer, and Vishny (LSV) (1992, J. of Fin. Econ.) to the data of loans outstanding to different types of borrowers, we obtain evidence indicative of the existence of herding. Consistent herding during the entire sample period is observed among regional banks, whereas city banks had been following a cyclical herd behavior with one peak around the bubble period in the late 1980s. Even after adjusting for herding resulting from rational or institutional factors, we still observe herding for regional banks in the entire period, whereas herding only in the bubble period remains for city banks. The results would indicate that regional banks had been consistently following irrational herd behavior, while city banks were frantic enough to herd only in the bubble period in the late 1980s.

This paper empirically investigates whether Japanese banks followed herd behavior during the 1980s and 1990s. Using the data of loan portfolios of banks of different types, the paper examines the existence of leader-follower relationships between lending behavior of different types of banks and the inefficiency of the behavior that can cause misallocations of financial resources and macroeconomic fluctuations. The results indicate the existence of herding consistently during the sample period, while the inefficiency of herding is concentrated in the early through mid-1980s, the period immediately after financial deregulation began. In particular, evidence for the inefficient herding is observed in the behavior of banks that made loans to new borrowers, and in the behavior of banks that followed the type of banks that were more informed on lending to new borrowers. On the other hand, inefficient herd behavior is rarely observed in the 1990s.

This paper investigates whether inefficient herd behavior of Japanese financial institutions in the domestic loan market affected the real economy during the period between 1975 and 1999. By using Japanese loan data, arranged by geographical area, we show that the loans that stemmed from inefficient herd behavior of Japanese financial institutions tended to have a negative impact on the GDP and land prices in the following years, while aggregated loans of those financial institutions had a positive impact. Our results indicate that the deterioration of the real economy in the 1990s may have been attributable partly to the inefficient herd behavior in the Japanese loan market during the period of the economic bubble in the late 1980s. JEL: G21, E44

This paper investigates whether Japanese banks followed herd behavior in loan markets during 1980–2000. Using data categorized by bank type and geographical area, we examine leader–follower relationships between the behavior of different bank types. We find evidence of their herding that is not explained by macroeconomic conditions. In particular, regional types of banks always followed banks that had large loan shares in individual areas. Such herding was observed more frequently in regional areas. Unusual herding by major banks was observed from immediately before the Japanese asset‐price bubble in the late 1980s to its bursting in the early 1990s. During the bubble period, the estimated amount of loans raised by major banks' herding in urban areas was greater than 2% of the average annual nominal GDP in the period, overwhelming that of herding by other types.